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Flawed monitoring could lead to overestimation of UK packaging recycling, says NAO

The UK’s packaging recycling rates could be overestimated due to flaws in the monitoring and oversight of the UK packaging recycling system, according to a new report by the National Audit Office (NAO).

The NAO, which is responsible for auditing government departments, agencies and public bodies, released its report today (23 July) at the request of Parliament’s Environmental Audit Committee (EAC), which assesses the environmental credentials of government policy.

The report looks at the performance of the UK’s packaging recycling system – the Packaging Recovery Note (PRN) scheme – as well as the what is being done to tackle fraud and error in the system and its monitoring by the Department for Environment, Food and Rural Affairs (Defra) and the Environment Agency (EA).

The PRN system is a market-based system put in place in 1997 in response to the EU’s 1994 directive on packaging and packaging waste (Directive 94/62/EC). Any company that owns or supplies packaging into the UK economy – handling more than 50 tonnes of packaging a year and with a turnover of at least £2 million per annum – is obligated to demonstrate that the packaging that it places on the market has been recycled. 7,002 companies were registered as having packaging obligations in 2017. This compliance is demonstrated through the purchase of PRNs from accredited reprocessors or recyclers exporting materials abroad.

Registered companies are not required to collect and recycle their packaging themselves, with the collection of packaging through the normal waste management system by local authorities and commercial waste management firms permitted under the regulations. The PRN system aims to provide a financial incentive for reprocessors to increase packaging recycling rates and for producers to contribute to the handling of their packaging waste.

However, critics of the system say that it does not ensure that producers pay their fair share towards the cost of managing their packaging waste, and that it places an undue financial burden on local authorities already buckling under the strain of budget cuts and government austerity. Others have expressed reservations regarding the accuracy of packaging waste estimates, which could skew any assessment of the performance of the system. These concerns are reflected in the NAO report.

Plastic packaging recycling rate ‘could be overstated’

The NAO report brings into question the accuracy of the government’s estimates on packaging recycling rates – plastic packaging recycling rates in particular – as well as the scale of the contribution of the PRN system to the reported increases in packaging recycling in recent years.

The government estimates that around 11 million tonnes of packaging are used by households and the commercial sector every year, and has reported an increase in packaging recycling rates for all materials from 31 per cent in 1998 to 64 per cent in 2017, exceeding the EU target of 55 per cent for every year since 2008. The government reports that the plastic packaging recycling rate currently stands at 39 per cent, some way above the 22.5 per cent target.

However, while stopping short of calling the government’s figures inaccurate, the NAO report does claim that the methodology for producing the estimates is ‘not sufficiently robust’. The report finds that Defra does not adjust its recycling rate figures for undetected fraud and error, relying on data submitted by reprocessors and exporters based on the sale of PRNs, despite a ‘financial incentive for companies to over-claim’ and a risk that waste exported for recycling is not actually being recycled. When waste is exported, a Packaging Export Recovery Note (PERN) is issued once the waste is sent abroad, which does not cover what happens to the waste once it arrives at its destination.

The NAO report finds that a significant proportion of the increase in packaging recycling rates is down to a growth in exports, with the total amount of packaging waste exported increasing sixfold since 2002. Exports account for half of the packaging recycling subsidised by the PRN system in 2017. The fact that PERNs are issued upon shipment and not upon reprocessing at the end destination brings into question the actual level of UK packaging recycling in recent years, while the additional issue of China’s ban on the import of 24 grades of solid waste, including post-consumer plastics, means export is no longer a reliable avenue for recyclate – much of China’s capacity has been replaced by alternative markets in places like Thailand and Malaysia, but it is unclear whether this is sustainable.

China has cracked down on the import of recyclable waste due to high contamination levels.

Image: Guangzhou Customs

Meanwhile, as has previously been alluded to by local authority stakeholders, the system is accused of allowing producers to avoid paying their fair share towards the costs of managing packaging waste. Only £73 million was paid by obligated businesses to fund packaging recycling in 2017, while Defra estimates that English local authorities spent around £700 million on collecting and sorting packaging waste during that time. The market-based system employed in the UK is markedly different from that used in many European countries that operate a full cost recovery system, whereby producers are responsible for the entire cost of recycling the packaging they place on the market. In the UK, obligated businesses contribute around £11.50 per tonne recycled, compared with costs to business of more than 48 euros (£42.80) per tonne in Germany, Belgium and the Netherlands.

Fraud and error

The NAO report finds there is sufficient scope for fraud and error in the PRN system. Currently, the system relies on reprocessors and exporters to self-report amounts of waste received for onward processing or shipment and for obligated companies to register for compliance of their own accord. This leaves room for reprocessors and exporters to artificially increase the levels of material recycled and for obligated companies to avoid registration.

While the EA provides for a range of monitoring activities, the NAO report states that it does ‘not have a good understanding of the extent of fraud and error’ in the system, citing a lack of assessment of different levels of fraud and error and their possible causes, precluding Defra from knowing the true scale of compliance activity.

The report also questioned the EA’s ability to provide effective controls and oversight of compliance and waste that is exported abroad. In 2016/17, the EA undertook 124 compliance visits, short of its target of 346, while only three unannounced site visits were made in 2017/18, covering only 1.4 per cent of accredited reprocessors and exporters in the UK. The EA also only made four queries to overseas agencies requesting that they check registration documents in 2017, compared to 53 in 2014. While the EA states that its data analysis regarding risk of fraud and error is robust, high-risk exporters were less likely than low-risk exporters to receive a compliance visit. This, added to the fact that 1,889 companies between 2009 and 2016 were flagged as potential free-riders but with no follow up on this estimation, leads the NAO to doubt the strength of the EA’s analysis.

Defra comes up short

Noting that the EA has recognised that its work on packaging has not been viewed as a priority at the Agency and that it is considering moving towards a national approach to packaging, away from the existing area-based approach, the NAO report calls for Defra to do more in its efforts to evaluate the wider effectiveness of the packaging recycling system.

The report finds that Defra, while carrying out a number of reviews and consultations regarding changes to packaging regulations and targets, has only carried out one ex-post (based on observed results rather than estimates) evaluation of the PRN system. This was narrow in scope and did not consider the total costs of packaging recycling or the additional benefits of the PRN system over other mechanisms like landfill tax, nor did it evaluate whether the PRN system had encouraged companies to make their packaging more recyclable. The report acknowledges that Defra will be reviewing the system in its upcoming Resources and Waste Strategy, expected in the autumn.

Moreover, Defra has not been proactive in managing risks associated with the export of waste. In 2011, it stated that global market fluctuations could affect packaging recycling, but did not then consider the risks that increases in countries’ domestic recyclate availability could reduce the demand for waste exports. Defra also concluded in 2013 that improving the quality of recycling was crucial for industry resilience, but has shown no subsequent improvement in contamination levels from material recycling facilities (MRFs) since 2014.

The report further questions whether the stakeholder committee set up by Defra on packaging recycling – the Advisory Council on Packaging (ACP) – is being properly engaged with by the department. Defra does not currently track how it responds to recommendations made by the ACP, with the committee limited to day-to-day operational matters, although it has recently been asked by Defra to engage with wider strategic issues, such as the design of a future packaging recycling system.

Recommendations

The NAO report makes a number of recommendations on how to improve the packaging recycling system. According to the NAO, the government should:

Improve its approach to estimating packaging recycling rates, through allocating responsibility within Defra for estimates, separate to responsibility for analysis and performance. Appropriate frequency for reviews of assumptions and methodology used to estimate packaging recycling rates should be set with consultation from industry and experts.

Evaluate the scale of fraud and error within the system, including the extent of contamination of waste exports, to refine its approach to compliance and see whether other actions could be taken to ensure compliance. Estimates of non-compliance must be included in estimates for packaging recycling.

Establish clear objectives for the reformed system, covering outputs and outcomes, with these objectives communicated clearly and in a timely manner to stakeholders.

Understand how the system works alongside other interventions, such as landfill tax, as part of a coherent waste strategy.

Defra recognises there is ‘much more to do’

Following the release of the NAO’s report, the response from Defra and the EU has recognised that there is work to do to improve the recycling system, while defending their record in improving recycling of packaging and enforcing compliance.

A Defra spokesperson said: “Since the current packaging producer responsibility regime was introduced, recycling rates have increased significantly. However, there is much more to do. We don’t recycle enough waste, and we export too much of it. That’s why we have already committed to overhaul the system, and we will set out our reforms in the Resources and Waste Strategy later this year.”

Defra was keen to point out that the statistics it uses are based on independent research undertaken by Valpak and the Waste and Resources Action Programme (WRAP), a registered charity at the forefront of delivering much of the UK’s waste and resources policy and which has seen its funding from Defra cut by 72 per cent between 2009/10 and 2015/16, while adding that its data is scrutinised by the European Commission as part of its annual submission.

Meanwhile, an EA spokesperson sought to highlight the agency’s record on enforcing compliance, stating: “We have a strong track record of using enforcement to bring businesses back into compliance. Since 2011, we have brought 258 businesses into compliance by using Civil Sanctions which has resulted in a combined financial payment of over £5M to environmental causes.

“Where we find any evidence of fraud or error in data reported to us, we remove that information from the overall packaging recycling data and calculations.”

‘The government must fix this broken system’

The NAO report has been welcomed by industry and stakeholders, with responses largely supportive of the findings, especially on the export of waste.

Mary Creagh MP, Chair of the EAC, which requested the production of the report, said: “The PRN system should have made packaging simpler and easier to recycle, delivered high-quality UK recycling, and protected our streets, countryside, rivers and seas from plastic litter. But today’s NAO report shows the PRN system has become a tick-box exercise. Waste is exported with no guarantee that it will be recycled, producers are not made to pay to recycle their packaging and the system is open to fraud and error.

“The government must fix this broken system in its upcoming resources and waste strategy. The PRN system should make producers pay to recycle their packaging, encourage simpler packaging, support the UK recycling industry, and be open and transparent so people can be confident what goes in the recycling bin gets recycled.”

Robbie Staniforth, Policy Manager at compliance company Ecosurety, added: “The quality of work produced by the NAO is very impressive. In just a few short months they have managed to pick up on the key issues. We have been concerned for some time about the six revenue reporting categories for exporters and reprocessors. No-one appears to be quite sure what each category means and why the data is collected. It is a bureaucratic exercise for reprocessors without any benefit to producers.

“We agree that the system has favoured export for low quality material and the Chinese restrictions have brought this issue into close focus. The risk of fraudulent exports is something we’d like to see tackled in a reformed system, not only to improve the system’s integrity, but to enhance the chances of material being reprocessed in the UK.”

Staniforth responded directly to the report’s questioning of the effectiveness of the ACP, expressing “frustration” at delays in releasing minutes of government meetings, and calling for the ACP’s “great potential to guide the government” to be “fulfilled”.

Paul Vanston, Chief Executive of the Industry Council for Packaging and the Environment (INCPEN), also welcomed the call for PRN reform, as long as it is “part of a package of actions – including beefing-up enforcement capabilities on exports” in order to “create the most effective and robust systems going forward.”

From the perspective of commercial waste management companies, calls for producers to do more were tempered with a reminder that recycling rates have increased and that highlighting the flaws in the system should not be used to undermine the case for recycling as a whole.

Jakob Rindegren, Recycling Policy Advisor at the Environmental Services Association (ESA), a trade organisation representing the UK’s waste management companies, said: “We wholeheartedly agree with the need for more audits and enforcement of any new system, with robust checks that reported data is accurate. However, it is worth stressing that the vast majority of packaging collected for recycling is recycled and that this is no time to lose faith in recycling but to step up our efforts to do better, right from the packaging design stage to minimising contamination at the household and demanding recycled content in new packaging.

“We should absolutely seek to recycle more of our waste here in the UK, but lack of domestic capacity means the export market will continue to be important for the foreseeable future, not least for paper and board where quality requirements for material going to China are very strict.”

David Palmer-Jones, Chief Executive of SUEZ recycling and recovery UK, said that the UK should move to a full cost recovery system to “ensure producers take responsibility on behalf of their consumers and customers of what they produce, encouraging them to be part of the solution and not kept at arm’s length through remote central bodies or compliance schemes.”

He added that the UK should look to its European counterparts for examples of best practice when devising a new system that can “alleviate the financial burden from resting solely on local authorities and others for collection of waste resources” – a system that “makes producers consider the full costs of collection, sorting and recovery of resources for the products they place to market.”

You can download the full report on the packaging recycling obligations from the NAO website.

Chinese restrictions on imports of 24 grades of solid waste were adopted on Monday and are set to cause significant discomfort in the UK recycling sector, with the Recycling Association saying that stockpiled plastics are already building up in members’ yards.

A new policy paper from LARAC, released today (11 April), calls on the government to introduce direct charging for household waste collections and PRN reform to increase recycling and tackle the funding crisis crippling UK local authorities.

Resources Minister Therese Coffey says ‘ambitious’ recycling targets proposed by the EU could lead to ‘perverse actions’ being carried out to ensure enough waste is recycled, suggesting that Defra considered instructing residents to water their gardens to produce garden waste during this year’s relatively dry summer.

The Trade Association Group, the umbrella group comprising the UK’s top waste and resource management organisations, has restated its priorities for the sector in a letter to newly appointed Environment Secretary Michael Gove.